Single family offices: how to design excellent personalized services

A single family office has something in common with tech companies: it disrupts parts of the service value chain due to increased efficiency, better quality, and lower cost. Still, clients want full service rather than excellence in partial problem-solving. Thus, the unbundling of traditional wealth management's fully integrated service landscape and subsequent reassembling to complete service is a complex arrangement of individual contributors. If they don't harmonize, family wealth is at risk. The following outlines the critical elements in the design process for a progressive family office's success and the steps towards a platform ecosystem.

The groundwork

A clear mission and vision and specified underlying values lay the foundation of every single family office. It is complemented by the specific value proposition: the services that provide value to the family and address their wants, pains, and needs. This should be lean, focused on the essential, personalized, and quality-driven. A value proposition that goes beyond protecting, preserving, and growing wealth ensures that the family doesn't need to resort to external substitute offerings to achieve their goals.

The comprehensive assessment should reflect the purpose of the family's wealth: it can unify the family, empower its members, and impact the community and result in a common understanding of how the family will manage its wealth over generations. With that, the family office embeds the family's values and purpose with financial objectives in broad terms.

Governance

A single family office is a service operation, and superior service delivery requires roles, decision-making, and procedures. They have a twofold function: ensure clarity and resilience internally and a clear rule-set for the family's and third parties' interactions. All too often, a family office is built around the founder and follows their ad-hoc instructions. With a value proposition that considers the entire family and future generations as customers of the family office, policies and process design should achieve clarity and manage all involved parties' expectations. A coherent governance framework will foster service excellence and proactive problem-solving in a collaborative environment.

Investment strategy

The investment strategy is at the core of a family office to ensure its alignment with the family's purpose of wealth. Ultimately, the financial objectives need to complement the family's values and purpose of wealth in the family office governance framework. There is no standard template for an individualized investment strategy, but it should clarify goals, objectives, vision, and related investment decision-making and monitoring. These elements not only guide the investment selection and evaluation in detail. They enable the family office's risk management in a consistent due diligence and monitoring process for both service providers and investments.

For multi-generational wealth preservation and growth, a tailored system delivers the best results for a disciplined and structured family office investment process. It aligns goals and objectives with consistent risk parameters in a diversified portfolio.

Investment committee

The family office investment committee's mandate is strategy implementation, and it monitors and controls its execution. It ensures consistency with the objectives and goals, risk management parameters, asset class guidelines, asset allocation, investment manager selection principles, and a structured review and control process.

The investment committee is a guardian of the family's wealth and acts in its best interest, avoiding and managing conflicts of interests. Depending on the individual circumstances, its functions can be outsourced entirely. However, a robust and disciplined process and clear findings on cost, performance, and strategy alignment remain indispensable.

Investment management

External investment managers have the benefit that you can change them if performance is not as expected, something that becomes cumbersome and costly if you build all capabilities in-house. Due to your family business, there may exist specific expertise and experience in an asset class, such as real estate or private equity. That's a great area to build in-house capabilities.

Regular investment manager reporting and performance reviews are part of the ongoing monitoring process covering, among other things, deviations from the investment strategy guidelines, organizational changes, and regulatory procedures. If performance is not within the defined parameters, there should be a specific monitoring process, including the monitoring period and criteria for replacement.

People

Finding the right people to integrate into the family office is its most critical asset. Beyond skills and expertise, you should place a specific focus on motivations and emotional intelligence to ensure that the family office's people share your values and culture and build empathy for your issues and pressures.

The next step is retention management. Industry-standard compensation will not be enough to retain talent in a highly competitive market. Beyond bonus payments, the reward should stand out from the crowd and add value to both the family office and its people: education offerings and secondments in specialized niche firms such as private equity or sustainability boutiques are good examples and foster an alignment in purpose.

Technology

Building your own technology is rarely an option. On-premise solutions come at a price and may soon be outdated. Cloud-based technology offers the best of all worlds and can still adapt to individual needs.

Next to banking-level security, aggregation and reporting of financial and alternative investments are core when it comes to the technology system. It should be integrated with your customer relationship management and project management capabilities to support communication, service delivery, and efficient collaboration. Since not all family members may be tech-savvy, the user interface should be intuitive and provide high-security access.

Outsourcing

A thorough understanding of realistic in-house capabilities and the subsequent allocation of services to excellent and trusted external providers will significantly increase your single family office's performance.

If your technology enables collaboration, the ecosystem participants will create synergies for the family office's benefit. This allows for the shift from reactive risk management to anticipating risks in a continuously stress-tested framework to enhance its resilience. You may apply this strategy to legal, compliance, security, or operations to tackle high complexity with leading capabilities on demand. Your family office's ecosystem needs to be developed and maintained to ensure smooth service delivery when complex and urgent.

The virtual family office

Leveraging technology allows you to go beyond digital. It's moving from the above outlined digital coordination to the virtual integration of external services. With a virtual family office, a technology platform integrates outsourced functions into the single family office. A central in-house team is responsible for the selection, oversight, and integration of external service providers. Combining technology and leveraging external service providers' expertise in an efficient virtual collaborative environment is the secret recipe for excellent results at lower costs.

Due to technology and external advisors and professionals adapting to a new collaboration and predictable pricing model, the single family office space is evolving towards platform ecosystems. They enable efficiency, data-based decision-making, real-time oversight and control, and substantial cost reduction.

The costs

According to the UBS Global Family Office Report 2019, the average overall operating costs of a single family office amount to 67 basis points of the liquid assets under management. Investment management and performance fees add another 50 basis points, and thus the total average gets to 117 basis points of liquid assets under management.

However, there is no strong correlation between the size of assets under management and the operating costs. The costs depend on your needs rather than your wealth.

Summing-up

Irrespective of your family office's structure, your family deserves the best service.?A clear mission and vision and underlying values complemented by the specific value proposition lay the foundation for excellence and high personalization in the design process. The focus on realistic in-house core capabilities and services and integrating external professional service providers in a technology-empowered collaborative environment lead to a platform ecosystem and outstanding results. Although a complex arrangement, it's designed to outperform the traditional service offering in terms of a personalized experience, quality, and costs.

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